Commentary on Political Economy

Wednesday, 7 March 2018

Foreign Trade and the Nation-State - Reply to Martin Wolf

Martin Wolf, in an FT Column, contends that trade barriers reduce the "wealth" of all countries without advantaging the countries that impose them, with or without "retaliation".

Mr. Wolf bases his argument on a neat distinction between “trade” - which presumably does not affect “macroeconomics” - and “macroeconomics” proper, which is presumably governed by a different set of principles. In the world of Classical (Smith, Ricardo, Mill) and Neo-classical economics (from Jevons to Hayek), trade is merely an “exchange”, a “free exchange”, between nation-State countries that does not and cannot affect the “national” economic policies, but can rather only “reflect” them.
In this perspective, it is “logical” that trade barriers can only affect national economies “globally” - all of them “negatively” - simply because, to repeat, “trade” is merely a “free exchange” that merely “reflects” the productive conditions (“macroeconomics”) “within national economies”.

Yet, this “logical” reasoning breaks down once we abandon the world of British “political economy” and we examine instead the “National-oekonomie” that formed the basis of German economic thought from Friedrich List through to Klein and ultimately even Schumpeter (especially in the ‘Theory of Economic Development’). It is clear from this latter viewpoint, that economic reality (“national” or “political” economy) differs violently from the “logical” framework of Classical and neo-Classical equilibrium developed by the English, and later the American, economists.
In this “national-economic” perspective, trade is not simply an “equal exchange”; rather, it is a form of political interaction that is vital to determining the relative “dominance” of one nation-State over another. The aim of all capitalist exchange is “profit” - the “wealth of nations” to which Smith (not Ricardo, and least of all the neo-classics, with the great exception of Keynes!) referred. But what is this “wealth of nations”? what is “profit”? Ina nutshell, profit is the ability to dominate other nations by “commanding” their living labour. (Marx came closest to this realisation.) It is clear therefore that trade is an attempt by nation-states to project their Political Might, their Power (Macht) over other nations. (See, on this theoretical point, M. DeCecco, Money and Empire.)

To the extent that “free trade” served the national-political needs of the Anglo-Saxons, the “science of economics could easily defend and propagate the theory of equilibrium and market-based international trade, reliant on the Gold Exchange Standard. Now that these “equilibria” are breaking down, it is time to revise the entire philosophical and political foundations of Western economics. - Something I have attempted in this Blog.

Perhaps I ought to add that, from this perspective (amply explored in this Blog), Western “economic science” represents the ultimate form of “power-lessness” (Ohn-Macht) that Nietzsche, and then Weber (who was close to the German Historical School of Economics), and ultimately Schumpeter openly denounced. In “Imperialism and Social Classes”, Schumpeter exposed the “will to power” (Nietzsche’s expression) that the German ruling class espoused to extend its economic domination over Central Europe, resulting ultimately in Hitler’s Lebensraum. Again in this German perspective - a “mercantilist” one -, the brutal racist-imperialist will to power of the Chinese Dictatorship is keenly displayed. It behoves us as inheritors of Western democracy to expose the “power-lessness” of Western “economic science” and to fight back those dictatorships that wish to adopt these bland logical tautologies into tools of politico-economic domination!